Walmart Beats 3Q18 EPS Estimates, E-commerce Sales up 54%

The world’s largest retailer Wal-Mart Stores, Inc. (NYSE: WMT) hit a new 12-month high of $100.13 last week, after the company reported fiscal 2018 third-quarter results that surpassed the Street estimates. Walmart also topped the same-store sales growth expectations of the market. Further, the company also lifted its fiscal 2018 earnings per share guidance. As explained below, Walmart, through a series of measures, is making progress in tackling the competition from online retail giant Amazon Inc. Thus, we forecast the stock to rally further in the days to come.

For the quarter ended October 2017, Walmart reported a consolidated net income of $1.749 billion, or $0.58 per share, on revenues of $123.179 billion. In the third-quarter last year, the company reported a net income of $3.034 billion, or $0.98 per share, on revenues of $118.179 billion. The Thomson Reuters revenue estimate was $121 billion for the recent quarter.

Excluding the loss on early extinguishment of debt, FCPA accrual, and impairment of certain international properties, the 3Q18 adjusted earnings of $1 per share were higher than the Thomson Reuters Consensus estimate of $0.97 per share.

In the US, comparable same-store sales increased 2.7%, versus analysts’ estimates of 1.8%, and above the 1.2% growth recorded last year. Hurricanes positively impacted sales by 30 to 50 basis points. Including fuel, the US comparable sales grew 3%, against a 1.1% rise posted in the prior-year quarter.

Segment wise, Walmart’s brick and mortar division recorded revenue of $77.72 billion, an increase of 4.3% from last year. Walmart International posted a 4.1% y-o-y increase in net sales to $29.54 billion. Sam’s Club reported a net sales of $14.86 billion, up 4.4% from the earlier year. The same-store sales of Sam’s Club increased to 2.8%, an increase of 140 bps from the corresponding quarter last year.

After reporting a 60% growth in e-commerce sales last year, the company again posted a 54% rise in online sales Frecessin the recent quarter. Much of the growth was accomplished due to its acquisition of Jet.com.

The company has made a series of acquisitions, including well known brands such as Bonobos, Modcloth and Moosejaw, in the past one year. Walmart is also expanding its grocery pickup service, while working with Google to launch voice-activated shopping. Walmart also officially confirmed that it is bringing Lord & Taylor’s fashion and apparel line-up to Walmart.com

To take the competition from Amazon head-on, during the holiday period, the company is planning to conduct 20,000 parties along with 165,000 product demos. Walmart also announced that it has decreased the average time required to process a return to 30 seconds, from 5 minutes earlier.

The company also issued a confident EPS outlook for Q4 and FY18. While expecting a US comp sales growth of between 1.5% and 2% in the current quarter, the company also anticipates earnings of $1.30 to $1.38 per share. The Wall Street analysts are expecting earnings of $1.33 per share. The company now expects FY18 earnings per share to be between $4.38 and $4.46 per share, instead of $4.30 to $4.40 per share expected earlier. Thus, robust 3Q18 earnings, impressive rise in e-commerce revenue, upbeat Q4 Comp view, and raised FY18 outlook turns Walmart bullish.

The stock is consolidating at 96 levels, as shown in the price chart below. The buying pressure is also indicated by the rising accumulation indicator. Thus, we expect the stock, which is trading above its 50-period moving average, to rally further.

Investing in a call option may prove beneficial in the current scenario. We would consider investing only if the stock is trading near $96 in the US stock market. Further, a contract valid for a period of one week should be available.

Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.

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